For-Profit Educator Is Sued

WASHINGTON—The Justice Department and four states on Monday sued Education Management Corp., alleging the operator of for-profit colleges falsely certified that it was eligible to participate in federal student loan programs.

The legal complaint came in a false-claims lawsuit that was originally filed by two of the company's former employees.

A federal judge in Pittsburgh, where the company is based, unsealed the lawsuit in May after the Justice Department indicated that it planned to intervene in the case.

The department said the company's compensation system for its admissions personnel violates the federal Higher Education Act because admissions employees are paid based on how many students they recruit. The law prohibits schools from paying admissions officials bonuses, commissions or other incentives based on their success in enrolling students. The provision is designed to discourage schools from enrolling unqualified students and taking advantage of the federal funds they bring.

Bonnie Campbell, legal adviser to Education Management, said in a statement that the lawsuit's claims were "flat-out wrong."

"EDMC's 2003 compensation plan followed the law in both its design and implementation, as EDMC's response to the governments' complaint will show," Ms. Campbell said.

Because Education Management's compensation system doesn't comply with the law, the claims that its schools made for payment under the federal programs were false, the department alleged.

The federal student loan programs provide students with Pell Grants and loans guaranteed by the federal government.

The department said Education Management and students enrolled in its institutions have received more than $11 billion in federal funds since 2003.

The department didn't specify how much money it is seeking. California, Florida, Illinois and Indiana joined the federal government's complaint.

Education Management's schools include the Art Institutes, Argosy University and Brown Mackie College.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.